What Was Learned From the 2015 Transition and Base Residual

Auction Results?

October 13, 2015OPSI Annual Meeting

CP Auction results – A DR perspectiveBruce Campbell - EnergyConnect

CP results – A DR perspective

• Perspective on clearing prices• What about summer peaking

Demand Resources?• Does the Aggregate Resource idea

work?• Does CP deliver reliability at least

cost?

Auction Clearing

CP represents a shift in key clearing drivers:• Old – Bids of new resources • New - Administrative Net Cone in the

form of the default offer cap.BRA and Transition Auction results indicate that generators can strategically bid relative to the default offer cap to maintain high clearing prices

Auction Clearing - BRA

Auction results suggest that strategic bidding can sustain higher prices.– Prices would have been higher but for

excess supply from prior high forecasts. • The 18-19 3 year forward forecast was 1.8 %

less than the 17-18 forecast.

Delivery Year

Cleared MW

2017-18 167,003.7

2018-19 166,836.9

Excess supply due to high forecasts

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2006 2007 PJME

2008 PJME

120000

125000

130000

135000

140000

145000

150000

155000

160000

165000

170000

Declining Load Forecasts

BRA1st2nd3rd

Incremental Auction

Given prior history with comparable amounts of excess supply by PJM offered, the 2017-18 1st IA results were significantly higher than similar auctions in the past.• This suggests there is value for

withholding capacity in order to hedge non-performance of CP resources and maintain eligibility for “bonus” revenues

Future

• The BRA prices were moderated by excess supply from prior delivery years– The forecasts for the BRA have declined

for the last 2 years

• BRA Prices are moderated by Base Capacity– Base Capacity is slated for elimination in

2020-21

Conclusion - BRA prices should increase substantially in 2020 and beyond.

Summer Resources

62% of Demand Resources did not offer as CP. This represents about 4.5% of overall supply.• 27% of DR is derived from HVAC• These resources may only be

available in Summer PSC mandated residential DR programs are at risk.

Why Isn’t DR moving to CP?

PJM loads are summer peaking – Load simply isn’t there to curtail in winter.• CP rules credit demand resources with only

the lesser of summer or winter curtailment.• Summer peaking Demand Resources

must either curtail to less than their summer commitment in winter or reduce their summer commitment.

• Winter M&V rules for Demand Resources result in unpredictable performance outcomes.

Economic Impact

• Many State Commission’s mandated and ratepayer funded demand response programs relied on the PJM capacity market to pass their cost/benefit tests.

• These programs will by-and-large no longer be considered by PJM as contributing to reliability

• Investments in summer peak management and AMI will be stranded

Economic Impact

Estimated impact of eliminating summer DR option will most likely cost ratepayers:

$1 - $3 billion per year in unnecessary capacity

charges

Aggregated Resources

PJM’s “fix” for summer only DR (Aggregated Resources) is challenging at best - and possibly unworkable.• Zero Aggregated Resources made

offers.• Issue – how to share capacity revenues

and performance risk?• Base-CP price spreads may be necessary to enable rational Aggregation contracts

Least Cost Result?

• BRA Base Resource clearing prices were within 10% of CP price.– Low spread between Base and CP may suggest

that spread bids rather than coupled bids should be allowed.

• Relatively high Base Resource clearing prices may reflect the value of uncleared resources for use as performance hedges for co-owned CP resources.

• Uncleared Generation resources may be providing an additional 7% IRM – 12,000MW.

Least Cost Result?

• Auction algorithm does not solve for least cost solution with Base Resources– Anomalous results in BGE, Pepco and PPL– Low Cost, uncleared Base resources in

BGE, PEPCO, and PPL can meet MAAC and RTO Base requirements.

– Why were these lower cost resources not cleared, thereby reducing MAAC and RTO costs?

Auction Clearing Issues

Questions• Does the CP approach encourage

withholding?• If providers are encouraged to consider

“bonus” revenue potential from uncleared resources, how should PJM account for installed capacity these uncleared resources?

• Should the 1% adder for point B of the VRR be eliminated?

Questions?

To learn more about Demand Response and the Advanced Energy Management

Alliance, visit our website.www.aem-alliance.org

Or Bruce Campbell –

bruce.Campbell@jci.com